Winsor calls for Network Rail to make £7bn cuts

The Rail Regulator Tom Winsor yesterday told Network Rail to cut about £7bn from its investment plans over the next five years by carrying out less renewal work on the railways and spending its money more efficiently.

Even with a budget reduction on this scale, the rail network operator will still require a big increase in funding to around £22.5bn, paid for largely by taxpayers through an increase in the access charges levied on train companies.

One of the first casualties of Mr Winsor's tough approach could be the hugely over-budget West Coast Main Line between London and Glasgow. Mr Winsor has proposed putting the modernisation of the line back by a year to save £1bn. The proposal, which would delay the introduction of 125mph trains north of Liverpool and Manchester, was rejected by the Strategic Rail Authority, which is responsible for providing Network Rail with funds and determining its priorities.

The SRA also took issue with an assertion by Mr Winsor in the document published yesterday that his final decision on access charges, due in December, would "determine the size, quality and cost" of the network. An SRA spokesman said this was the SRA's responsibility, adding: "I can only assume it was a temporary aberration which should never have made it into print." The spokesman said that if the railways were a supermarket then the SRA would be the chief buyer and Mr Winsor the price-checker.

Network Rail's latest business plan involves spending £29.6bn on the operation, maintenance and renewal of the network between 2004 and 2009. But Mr Winsor, in his review of access charges published yesterday, indicated the figure should be nearer £22.5bn. Compared with the £6bn a year Network Rail is currently investing, Mr Winsor said spending should come down to £5bn next year and £4bn by the end of the five-year period.

The reductions Mr Winsor demanded come on top of the £5.3bn of cost savings Network Rail has already identified for 2004-2009. He said they could be achieved by carrying out about 15 per cent less renewal work than currently budgeted for and improving efficiency by a further 10 per cent on top of the 20 per cent savings Network Rail is proposing.

Mr Winsor said Network Rail could achieve the additional cost savings by better management of its contractors, better planning and checking of maintenance work and a more efficient "possessions" regime which could involve closing off lines for longer periods overnight or blockading them altogether for extended periods.

Mr Winsor said that in setting access charges he would assume Network Rail financed a significant amount of its investment from borrowings. This would mean a big increase in interest charges which would require it to make a bigger overall return on assets. To achieve this, the regulator plans to more than double Network Rail's regulatory asset base to £16.5bn and allow it a 6-8 per cent return which will increase its surplus by £500m to £800m.

Network Rail said it fully agreed with the regulator that it had to improve efficiency and cost savings. But it noted that Mr Winsor himself had described his access charges review as a "work in progress" not due to conclude until December.